Vancouver’s Latest Tax May Impact Seattle Real Estate Market

Though the Seattle real estate market is attractive on its own merits, a recent tax issued in Vancouver, Canada may create even more demand in the Seattle housing market. In recent years, foreign buyers have caused housing prices in the Vancouver market to rise substantially. In response, the city (of Vancouver) implemented a tax to help stabilize the market. Some observers speculate that new tax will push foreign home buyers south toward Seattle. Let’s take a look at the facts and develop an informed view of the matter.

Foreign Buyer Transfer Tax

The new tax – which is known as the Foreign Buyer Transfer Tax – applies specifically to foreign buyers in the Vancouver housing market. Whenever a foreigner purchases a piece of Vancouver real estate they must pay an additional 15 percent on top of the home price. The tax took effect on August 2nd of this year.

Because little time has passed since the implementation of the tax, predicting its long-term impact is not an easy task. However, it seems likely that foreign real estate buyers – who are predominantly Chinese – will look toward Seattle simply because of the large disparities in home prices between the two markets. In August, the benchmark home price in Vancouver rose to $1.57 million; in Seattle the median home price is $625,000. It seems reasonable to predict that the new Vancouver tax will create an additional incentive to migrate south on top of other incentives which already exist.

Since August, investment in the luxury real estate market of Vancouver has declined by approximately 20 percent. Whether this decline is attributable specifically to the new tax is not fully clear. Along with Seattle, foreign buyers will probably also look toward Toronto.

Possible Impact on Seattle Market

As of right now, there is relatively little hard evidence to support the idea that the Vancouver tax will lead to a stampede of foreign investment in the Seattle real estate market. In fact, there are some data which may suggest a decline in foreign investment. As a general matter, tracking foreign investment is a difficult task, but one way to obtain an imperfect sense of foreign investment trends is to look at cash sales. Cash sales may reflect foreign investment trends to a degree because many (though not all) foreign buyers pay in cash because they are unable to obtain financing in the U.S. But, as it turns out, cash sales have actually declined in Seattle in the past several years. Though this is not conclusive evidence, it tends to throw doubt on the migration hypothesis.

Even without a pile of solid evidence surrounding it, the Vancouver tax has still managed to catch the attention of the Seattle political establishment. Seattle officials are very concerned about keeping housing prices affordable and the potential impact of the Vancouver tax has already sparked discussion about policy considerations. However, it seems certain that no measures will be adopted until there is more firm data on the effect of the tax.

The new Vancouver tax is an interesting example of a city taking action to stabilize its housing market. But at this point it appears that the idea of this tax creating a veritable avalanche of foreign investment in Seattle is almost pure speculation.

About johnSeattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.